Amazon Predicts Strong Holidays, But Cuts Forecast

Amazon.com cut its 2008 revenue and income forecasts on Wednesday, saying sales in the holiday quarter would fall short of Wall Street expectations.

SAN FRANCISCO, Oct 22 (Reuters) - Amazon.com Inc cut its 2008 revenue and income forecasts on Wednesday, saying sales in the holiday quarter would fall short of Wall Street expectations, and its shares fell 14 percent.

The online retailer has cut prices on its site to spur sales in a weak U.S. economy, but investors fear that will not be enough to counter the effects of a financial markets crisis and signs of a global recession.

"This is further confirmation that the economic downturn is much more pervasive than was earlier thought," said Sanford C. Bernstein analyst Jeffrey Lindsay.

"Online retailers were thought to be immune to it, but this is an indication that that is far from true," he said. "They are definitely signaling much worse returns in the fourth quarter."

Amazon's third-quarter net income rose to $118 million, or 27 cents per share, from $80 million, or 19 cents per share, a year earlier. Revenue rose to $4.26 billion.

Wall Street analysts, on average, had been expecting earnings of 25 cents per share on revenue of $4.28 billion, according to Reuters Estimates.

The company expects net sales for the fourth quarter, including the crucial holiday period, of $6.0 billion to $7.0 billion, or growth of 6 percent to 23 percent. It forecast operating income at $145 million to $305 million.

Analysts, on average, expected sales of $7 billion in the fourth quarter, the company's busiest quarter.

As many analysts had predicted, Amazon cut its 2008 forecast, saying it now expects net sales of $18.46 billion to $19.46 billion, compared with its earlier forecast of $19.35 billion to $20.10 billion. The average analyst's estimate is $19.49 billion.

Full-year operating income is now expected to range from $716 million to $876 million, versus a previous view of $745 million to $920 million.

Gross profit margins were flat in the third quarter, but operating profit margins as a percentage of total sales fell slightly to 3.6 percent from 3.8 percent.

Shares of Seattle-based Amazon are valued at 34 times 2008 projected earnings. This is at a premium to Internet stocks like eBay Inc and Yahoo Inc, at 9 and 29 times forward-looking earnings, respectively, and brick-and-mortar retailers such as Wal-Mart Stores Inc, at over 15.